On Friday, the Croatian Bureau of Statistics published its first estimate for the GDP in Q3 2022. According to the estimate, the GDP grew by 5.2% YoY in real terms. In 9M 2022, GDP increased 7.1% in real terms.

According to the first estimates of the Croatian Bureau of Statistics, GDP grew by 5.2% YoY in real terms in Q3 2022. It should be noted that this refers to the non-adjusted data. According to the seasonally adjusted data, the GDP decreased by 0.4% compared to the previous quarter but grew 5.5% YoY. In 9M, GDP increased by 7.1% in real terms.

Final consumption, the largest contributor to the GDP, increased by 4.3% in Q3 2022, continuing the economic growth (and recovery) that started in Q2 2021 with the complete easing of COVID-19 measures and the total reopening of the economy. This is also evident if we look at the households (the largest contributor to the final consumption at 76%), which grew by 5.6% YoY. However, we note current inflationary pressures are persistent with inflation numbers peaking, which might discourage further growth in final consumption resulting in lower growth rates in the last quarter of the year. Next up, we have the General Government (making up the remaining 24% of the final consumption), which increased by 1.3% YoY. Meanwhile, Gross fixed capital formation increased by 8% in Q3, and this number is expected to keep growing as more funds from the EU continue to be implemented in the economy.

At the same time, the export of goods and services increased significantly, growing by 23.3% YoY. Tourism has positively affected the growth of GDP, while the export of services grew by 18.4% YoY. export of goods, growing with double-digit figures (37% YoY), showing increased demand for domestic products. This is further evidence that the complete easing of measures and border restrictions has significantly impacted the growth of exports. However, total export was mainly driven by the growth of services which is usual seasonality as top tourist season is important driver of GDP growth in Croatia.

On the other hand, the import of goods and services also grew significantly, increasing by 30.5% YoY. Out of this, goods grew by 33.4%, while services grew by 15.3%. Due to the fact that export, which amounted to HRK 103.3bn, were higher than imports (HRK 71.8bn). This means that even with higher import growth, there were still net positive exports of HRK 31.4bn reported. We note that higher net positive exports contributed significantly to GDP growth during Q3.

In total, GDP in 9M 2022, in real terms amounted to HRK 325.4bn, representing a 7.1% increase YoY. As the current inflationary pressures peak and the supply chains are still in a precarious situation (but much better than compared to 2021), the GDP growth is expected to continue. However, this growth should happen at a slower pace than especially the levels seen in 2021 (it should be noted that Q3 2021 GDP growth amounted to 15.1%, and Q4 amounted to 9.7%) meaning that the base is also higher. As such, and according to our estimate for FY 2022 the GDP growth is expected to be 5.3% YoY.

Croatian GDP, real growth rates (%, YoY)*

*Quarterly Gross Domestic Product, seasonally adjusted real growth rate

By the end of October 2022, the NAV of Croatian pension funds amounted to HRK 130.8bn, representing an increase of 1.1% MoM, but a decrease of 1.6% YTD.

Recently, the Croatian Financial Services Supervisory Agency (HANFA) published its latest report on the changes recorded by the Croatian mandatory pension funds, for the month of October 2022. In it, we can see that the NAV of the pension funds amounted to HRK 130.8bn, an increase of 1.1% MoM, 0.2% YoY, but a decrease of 1.6% YTD. Meanwhile, the net contributions into the funds amounted to HRK 705.4m, which would mean that on a YTD basis, they amounted to HRK 6.81bn.

Mandatory pension AUM structure change (January 2018 – October 2022, HRKbn)

Source: HANFA, InterCapital Research

In terms of the changes recorded in the asset holdings, on an MoM basis, the largest absolute increase was recorded by deposits and cash holdings, which increased by HRK 2.38bn (or 47%), followed by investment funds, which increased by HRK 649.8m (or 4.8%), and shares, which increased by HRK 462.7m, or 1.8%. On the other hand, bond holdings decreased by HRK 1.77bn, (or 2.1%), while other asset holdings decreased by HRK 524m (or 60.7%) MoM. In total, the NAV on the monthly basis increased by 1.1% or HRK 1.4bn.

Meanwhile, on a YoY basis, the picture is somewhat similar. The largest increase was also recorded by deposits and cash, which increased by HRK 2.1bn, or 39%, while bond holdings increased by HRK 424.7m or 0.5%. On the flip side, shares recorded the largest decrease, declining by HRK 1.37bn, or 5.1%, followed by investment funds, which lost HRK 524m, or 3.6%, and receivables, which declined by HRK 483.9m, or 59%.

The decline on the yearly basis in terms of the shares and investment funds is due to the current macroeconomic and geopolitical environment, which includes high inflation and a lot of risk aversion to investments into riskier types of assets such as shares, and to an extent, investment funds. As such, the decline in the value of these assets has been recorded. Moreover, the pension funds themselves are also even more risk averse, due to their long-term investment strategy and the risk reduction requirements that are placed on them. As such, the increase in the most liquid and the least risky types of assets, i.e. deposits and cash, is expected, even if these assets yield by far the lowest returns. On the monthly basis, however, we can see that there has been somewhat of a slowdown in the trend, as more investments are made into shares and investment funds, while the decline in the value of bonds can be attributed to the overall decline in the bond market we have witnessed as a result of said macroeconomic developments.

Looking over to the asset structure of the pension funds, the bond holdings still maintain the majority, at 63.2%, (or HRK 82.6bn), which is a decrease of 2.05 p.p. MoM, but an increase of 0.7 p.p. YoY. Shares are the next largest holding, at 19.6% (or HRK 25.7bn), which is an increase of 0.14 p.p. MoM, but a decrease of 0.9 p.p. YoY. Finally, the only other holding above 10% are the investment funds, which have 10.9% of the total (or HRK 14.2bn), an increase of 0.38 p.p. MoM, but a decrease of 0.3 p.p. YoY.

Current mandatory pension funds AUM (October 2022, %)

Source: HANFA, InterCapital Research

Meanwhile, dividing the bond and equity holdings into domestic and foreign, the domestic bond holdings account for 93.3% of the total bond holdings, representing an increase of 0.14 p.p. MoM, while the foreign bond holdings account for the remaining 6.7%. On the other hand, domestic equity holdings account for 60.7% of the total equity holdings, which is a decrease of 1.3 p.p. MoM, while foreign equity holdings account for the remaining 39.3%.

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